Over the past three years, Macy’s has closed 20 percent of its stores across the U.S., and last January the company announced a new round of closures. Now the pressure is on to find new uses for these sites.
“Our assignment entailed that we move quickly, that we not look 12 to 18 months into the endeavor at a large remaining portfolio,” said Neill Kelly, a CBRE senior vice president who leads the restructuring and disposition team. CBRE was hired in January of last year to dispose of about 40 former Macy’s stores across the country. “Remember, these things are not free,” Kelly said. “Just because a department store owns their real estate does not mean that the store can sit on it and it costs them nothing. Our job was to get the best price, but do so in the shortest possible time frame while maintaining the integrity of the process.”
The majority of the stores were in secondary and tertiary markets. “In many cases,” Kelly said, “we were dealing with properties that were connected to a mall that has fallen on hard times, and so our challenge was to make sure that we broadly advertised the availability of the real estate and that we would entertain inquiries and act as a line of first defense to try to screen out [all but] the most-qualified buyers.”
During the sale process, Kelly noticed a major shift in mall owners’ attitudes toward these vacant spaces. “When department stores used to close, more often than not the solution for dealing with them was to make some arrangement with the owner of the mall,” said Kelly. “But today these mall anchor closures are happening with such velocity that the mall owners are not always the ones who are going to be taking them back.”
As of now, CBRE has sold off about 25 of these stores. “Over the course of essentially the last 12 months, we have been knee-deep in helping Macy’s monetize that real estate and selling it to a combination of folks, which includes the mall owners and other third parties,” said Kelly. “We have become pretty good at it.”
The first sale was the Macy’s at The Boulevard Mall, in Las Vegas, which was purchased in June 2017 for $35 million by a local real estate investment family. The planning for reuse of the space is still under way. Now, nearly a year after that first transaction was announced, many of the former Macy’s boxes are undergoing various stages of reuse, and in some cases, even demolition. “The jury is out on most of our Macy’s,” said Kelly. “We may have sold them, but what is going to become of them it is too early to tell, because the vast majority of the folks who bought them are going to redevelop them — they just don’t know how or [to] what.”
“Herberger’s, HomeSense, Sierra Trading Post and U-Haul are among the tenants taking over vacant Macy’s stores.”
Last November PREIT said it would replace a former Macy’s at Moorestown (N.J.) Mall, 15 miles from Philadelphia. HomeSense will take 25,000 square feet, and Sierra Trading Post will occupy 18,000 square feet at that 200,000-square-foot property. Both retailers are divisions of TJX Cos. and are new to the local market. PREIT says both stores will open by the end of this year.
“The lead tenants replacing the former Macy’s at Moorestown Mall are leaders in the off-price segment, an important addition to this property as we continue to bring new and varied offerings to the most affluent Philadelphia suburb in southern New Jersey,” said Joseph F. Coradino, CEO of PREIT.
Negotiations are under way with at least two more potential tenants. PREIT also replaced a former Macy’s at its Valley View Mall, in La Crosse, Wis., with a Herberger’s department store last September.
Last December U-Haul purchased the 203,000-square-foot former Macy’s at Beaver Valley Mall, about 30 miles northwest of Pittsburgh, for roughly $1.5 million. In January the company announced plans to create a showroom and a self-storage facility in that two-story space.
In Alton, Ill., some 15 miles north of St. Louis, the owner of Alton Square Mall is finishing up demolition work on the 200,000-square-foot former Macy’s anchor store. The Hull Group, which purchased the mall last April after the Macy’s shut down, has plans to market the 14 acres of land for retail uses along the highly visible Homer Adams Parkway. The move is part of Hull Group’s planned $22 million redevelopment of that mall.
“One of the earliest examples of a Macy’s reuse involved a charter school in Columbus, Ohio.”
A vacant Macy’s building in downtown Spokane, Wash., is being converted to residential use, with 114 apartment units to be ready for occupancy by this September. Spokane-based Centennial Properties purchased the 10-story building in June 2016. Plans there call for a Nike Factory Store to occupy the ground-floor space, according to Doug Yost, Centennial’s director of real estate investment.
DealPoint Merrill acquired a 162,200-square-foot vacant Macy’s building at the Richmond Town Square Mall, in Richmond Heights, Ohio, east of Cleveland. The store, which has sat vacant since 2015, is to be redeveloped into a CubeSmart self-storage facility, with an additional 30,000 square feet set apart for use by two national restaurants.
One of the earliest examples of a Macy’s reuse involved a charter school in Columbus, Ohio. According to Kelly, the school was about to lose its lease on a nearby facility, and CBRE was already deep in negotiations with another buyer. “They made us an offer that was the best we were likely to receive in the marketplace, and they were willing to take the building without subjecting Macy’s to long, drawn-out contingency periods,” he said. “That’s a good thing, because these boxes don’t get better with age.”
By Ben Johnson
Contributor, Shopping Centers Today